What is capital gains tax?
In Australia, capital gains tax (CGT) is a tax imposed on the profits made from the sale or disposal of certain assets. It is the tax applied to the capital gain, which is the difference between the sale price of the asset and its cost base.
Capital gains tax is applicable to various types of assets, including real estate, shares, units in a unit trust, collectibles, and personal use assets acquired after September 20, 1985. It generally does not apply to assets acquired before that date.
The Factors of Capital Gains
When calculating capital gains tax, you need to consider the following:
This includes the original purchase price of the asset, as well as other costs incurred to acquire or improve it, such as legal fees, brokerage fees, and renovation expenses.
This is the amount you receive from selling or disposing of the asset, minus any incidental costs associated with the sale.
The capital gain is calculated by subtracting the cost base from the capital proceeds. If the result is positive, you have a capital gain.
If you have owned the asset for more than 12 months, you may be eligible for a CGT discount. Currently, individuals receive a 50% discount, meaning only half of the capital gain is subject to tax. Some exceptions apply to specific assets.
CGT Exemptions and Concessions
Certain assets may be exempt from capital gains tax, such as your main residence. Additionally, there are concessions available for small businesses and specific events like marriage breakdowns or deceased estates.
The capital gain is included in your income tax return for the relevant financial year, and the tax is calculated based on your marginal tax rate. It’s important to keep records of the acquisition and sale of assets to accurately calculate and report your capital gains.